Econometrica: Mar 2014, Volume 82, Issue 2

Macroeconomic Implications of Agglomeration

https://doi.org/10.3982/ECTA9029
p. 731-764

Morris A. Davis, Jonas D. M. Fisher, Toni M. Whited

Cities exist because of the productivity gains that arise from clustering production and workers, a process called agglomeration. How important is agglomeration for aggregate growth? This paper constructs a dynamic stochastic general equilibrium model of cities and uses it to estimate the effect of local agglomeration on aggregate growth. We combine aggregate time‐series and city‐level panel data to estimate the model's parameters via generalized method of moments. The estimates imply a statistically and economically significant impact of local agglomeration on the growth rate of per capita consumption, raising it by about 10%.

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Supplemental Material

Supplement to "Macroeconomic Implications of Agglomeration"

This document provides supplementary background for the paper.  It discusses (1) the growth model, (2) the data, (3) deriving the moment conditions underlying estimation, (4) measuring the impact of agglomeration on per capita consumption growth (5) solving the model, (6) standard errors of our estimates, (7) monte carlo analysis of our estimation strategy, (8) proofs of equilibrium existence and uniqueness for versions of the model without housing, (9) several perturbations to our estimation and (10) how we verify numerically that the Luttmer (2007) property holds.

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Supplement to "Macroeconomic Implications of Agglomeration"

This zip file contains replication files for the manuscript.

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Supplement to "Macroeconomic Implications of Agglomeration"

This zip file contains the replication files for the manuscript.

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